Saturday, 6 September 2014

What is bitcoin: money or property?

Every institution in our society/economy operates in terms of its specific laws, regulations and generally accepted concepts.
For example: Judges: They interpret the law. That´s it. Nothing more. When the US IRS code states 23 times that money is a property then – for US judges interpreting US IRS laws – bitcoin is money. Finish and klaar. Ponto final. Very simple. They interpret the law. However, judges are not required to define economic concepts. They just interpret the law.
Another institute: Tax authorities: for them money is something that is, inter alia, legal tender. For them bitcoin is not money. For them bitcoin is a property.
Economists: An item has to have all three attributes of money to be money. Bitcoin is not and will never be a relatively stable in real value unit of measure for accounting purposes. Bitcoin thus is not and never will be money for economists and the accounting and auditing profession.
Consumers: Anything (cigarettes in a prison) that is widely accepted as a medium of exchange which overcomes the double coincidence of wants problem, is money. For consumers bitcoin is money.
In the end the market (consumers/users) will win the battle.
Example of what was not suppose to happen, but users simply ignored the rules: Money was/is suppose to be perfectly stable in real value as from the beginning of money. Dishonest kings (monetary authorities) debased money and it never was or is perfectly stable in real value on a sustainable basis. With fiat money, inflation and deflation do the destabilizing bit.
What did users do? They (economists, accountants, auditors, business people, people in general) simply ASSUMED money is PERFECTLY STABLE as from the beginning of money  - till today. Today the traditional, globally implemented, generally accepted accounting model used by all companies is the Historical Cost Accounting model under which the STABLE MEASURING UNIT ASSUMPTION is implemented for the valuation of many (not all) items in the economy; e.g. capital, salaries, wages, rent, trade debtors, trade creditors, etc. These items are ASSUMED to be perfectly stable in real value. For their valuation, money is ASSUMED to be PERFECTLY STABLE, although everyone knows money is NEVER perfectly stable on a sustainable basis.
So, the above is a perfect example of what will most probably happen with bitcoin: users will simply ASSUME it is money although it is impossible for bitcoin to ever be money because it is not relatively stable in real value and will never even be  ASSUMED to be perfectly stable in real value like real money is for accounting purposes.
You can´t beat the market/users.

Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.